JERUSALEM  President Bush called for a halt to Israel's military occupation of land the Palestinians claim for a state and an end to the terrorist threat over the Jewish homeland, spelling out the U.S. bottom line Thursday for ending the long and bloody Mideast conflict.

"Now is the time to make difficult choices," Bush said. An agreement will require "painful concessions" by both sides, Bush said, but he predicted one could be reached within a year, putting himself more firmly on the line than ever for an achievement considered unlikely by many experts.

The White House said Bush would return to the Mideast at least once and possibly more this year, including another stop in Israel for its 60th anniversary celebrations in May.

Bush came away with no breakthroughs or apparent concessions from two days of separate talks with Israeli Prime Minister Ehud Olmert in Jerusalem and with Palestinian President Mahmoud Abbas in the Palestinian West Bank. There was no joint meeting of the three leaders, but Olmert and Abbas assured Bush they were serious about reaching an agreement.

Bush's peacemaking checklist, combining existing U.S. policy with a few new elements, was his most detailed summary yet of U.S. expectations for resolving some of the hardest issues in a final peace accord. He outlined his position in a five-minute statement to reporters summoned to a room in the King David Hotel, overlooking Jerusalem's holy and historic Old City.

The biggest hurdles to an agreement are: conflicting claims to the holy city of Jerusalem, different views about the outlines of a future Palestinian state, and the fate of Palestinian refugees and millions of their descendants. Bush pointedly dodged the Jerusalem question, simply calling it "one of the most difficult challenges on the road to peace."

As if to jolt Israel into action, Bush deliberately used a loaded term -- occupation -- to describe Israeli military control over the West Bank, the territory that would eventually form the bulk of an independent Palestinian state.

This is how Bush described the opening point for peace negotiations:

"There should be an end to the occupation that began in 1967. The agreement must establish Palestine as a homeland for the Palestinian people, just as Israel is a homeland for the Jewish people. These negotiations must ensure that Israel has secure, recognized, and defensible borders. And they must ensure that the state of Palestine is viable, contiguous, sovereign, and independent."

By any Arab definition, the way Bush described occupation would include East Jerusalem, the West Bank and Golan Heights. National Security Council spokesman Gordon Johndroe said the president was talking just about the West Bank.

In a nod to Israel, Bush said borders would have to be adjusted by mutual agreement "to reflect current realities" since Israel's formation. He was referring primarily to Israeli neighborhoods on disputed lands, essentially saying Israel would keep these settlements when an independent Palestinian state is formed.

But he also said a Palestinian state must be "viable and contiguous." Earlier in the day, Bush said Palestinians deserve better than a "Swiss cheese" state fitted around Israeli land and security bulwarks.

One new element was the suggestion that the international community should help compensate Palestinians and their descendants who claim a right to return to land they held before Israel's formation.

"It is vital that each side understands that satisfying the other's fundamental objectives is key to a successful agreement," the president said.

Bush's remarks evoked scant reaction in Israel. Polls show a majority of Israelis support a land-for-peace agreement and are uncomfortable with the notion of a long-term occupation. In 2003, two years before Israel withdrew from Gaza, then-Prime Minister Ariel Sharon said that "keeping 3.5 million Palestinians under occupation is bad. Occupation is bad."

In Washington, Jon Alterman, head of the Middle East program at the Center for Strategic and International Studies, said Bush's statement was "more detailed than he has been so far about the shape of a negotiated solution, but there is a lot of opposition on both sides even to his vague principles." He said Bush didn't spell out enough specifics to answer critics on either side.

Bush spent the morning in the Palestinian West Bank, unexpectedly riding by car and getting a firsthand look at two Israeli checkpoints on his way to talks with Abbas at his government's headquarters in Ramallah. The president said he understands Palestinian frustration over roadblocks and barriers that have made travel difficult for Palestinians and, according to the World Bank, crushed the Palestinian economy. But Bush said the checkpoints were necessary for now to give Israelis a sense of security.

Bush tempered his optimism about reaching a peace accord with harsh words about Hamas, the Islamic militant group that seized control of Gaza in June and set itself up as a rival Palestinian government in that tiny coastal territory to Abbas' Fatah-led government in the West Bank.

"Gaza is a tough situation," Bush acknowledged. "I don't know whether you can solve it in a year or not."

He said Hamas was elected to help improve the lives of Palestinians, but "has delivered nothing but misery."

"The question is whether or not hard issues can be resolved and the vision emerges, so that the choice is clear amongst the Palestinians," Bush said. "The choice being, 'Do you want this state? Or do you want the status quo? Do you want a future based upon a democratic state? Or do you want the same old stuff?"'

In Washington, the State Department announced that the United States would make an initial 2008 donation of $40 million to the U.N agency that assists the more than four million Palestinian refugees in Gaza, the West Bank, Jordan, Lebanon and Syria. It said in a statement that more contributions would be made throughout the year.

In both Jerusalem and Ramallah, Bush prodded Arab governments to stand with Abbas.

"The Arab world has got an opportunity and obligation, in my judgment, to help both parties in these negotiations move the process forward," said Bush, who leaves Jerusalem Friday for stops in Kuwait, Bahrain, United Arab Emirates, Saudi Arabia and Egypt.

Despite Bush's attempts to show Palestinians he is on their side, too, his West Bank visit generated little excitement among the populace. Doubts are high in the territories about his promises to pursue peace.

"Bush won't help us," said Habib Hussein, 54, sipping tea at a Ramallah cafe. A few Palestinians braved heavy security to try to demonstrate against Bush. But Palestinian police swinging clubs waded into the small crowd. Palestinian police also detained two people passing out anti-Bush leaflets before he stopped in at the traditional birthplace of Jesus in Bethlehem.

Abbas, however, said at Bush's side that his visit "gives our people great hope."

The Palestinian leader urged Israel to fulfill its commitments under a 2003 U.S.-backed Mideast peace plan, known as the roadmap. It calls on Israel to halt settlement activity in the West Bank, while requiring the Palestinians to dismantle militant groups. Neither side has fully carried out its obligations.

Bush also named Lt. Gen. William Fraser III, assistant to the Chairman of the Joint Chiefs of Staff, to monitor steps that both sides are making to move forward on the roadmap requirements. "It's one of the positive signs of the visit," said Mohammed Mustafa, economic adviser to Abbas.

A statue of Saint Hieronymus is seen as President Bush walks out of St. Catherine's Church during a visit to the Church of the Nativity, traditionally believed to be the birthplace of Jesus Christ, in the West Bank town of Bethlehem, Thursday, Jan. 10, 2008. Bush spent the day in the West Bank and met with Palestinian Authority President Mahmoud Abbas and then flew by helicopter to the biblical town of Bethlehem to visit the church. (AP Photo/Kevin Frayer,Pool)